Our sacred clergy tax break the Housing Allowance continues to give us a pretty good exclusion for a chunk of our cash pay. I’d speculate that the average Southern Baptist pastor is able to exclude $1000-$2000 a month from being reported and taxed under our income tax laws. I’m just guessing about the numbers. A pastor of an averaged-sized church with a stay-at-home wife and a few runny-nosed exemptions, er…children, around the house likely pays no income tax at all. In spite of legal challenges I think the clergy housing allowance is secure for the foreseeable future. I like it, use it, and think it to be a nice, modest, tax break that is appropriate and helpful.
But what about the various staff members in our fully autonomous churches? Affluence, multiple staff positions, and creative staff titles makes for some interesting scenarios.
Do all these qualify as a “minister” under IRS rules? Most probably do. Some probably don’t. Some shouldn’t.
GuideStone answers the questions most of us have in their Commonly asked questions about minister’s housing allowance. As to who is eligible for it, the Q & A says:
The Internal Revenue Service usually uses one of two tests to determine if a minister is a minister for tax purposes. The IRS normally uses the Wingo or Knight test. In deciding if a person is a “minister” for federal tax purposes, the following five factors must be considered: (1) the person must be ordained, commissioned, or licensed; (2) administration of sacraments; (3) conduct of religious worship; (4) management responsibilities in the local church or a parent denomination; (5) considered to be a religious leader by the church or parent denomination. In general, the IRS and the courts require that a minister be ordained, commissioned, or licensed, and then they apply a “balancing test” with respect to the other four factors. The more factors that a person satisfies, the more likely he will be deemed to be a minister for tax reporting purposes.
Here is where lawyers and CPAs make their money. Chase this as far as you want in legal cases and rulings but here’s the simple version: You can decide for yourself (or your church for itself relative to its staff) who is a minister for tax purposes; however, the minister/taxpayer better be on pretty solid ground, ground defined by the IRS not the church, or face some very bad and expensive news down the road. Because of that, GuideStone says if there is any question you should consult with a knowledgeable tax preparer or lawyer. I agree. Lest anyone isn’t clear, this article isn’t written by one of those.
The most of us are ordained, administer the ordinances (‘sacraments’ is one of those dirty words to us Baptists), conduct religious worship, have more management responsibilities for the church than we want, and are considered to be a religious leader by the church. We answer, “yes, yes, yes, yes, and yes” to the five IRS questions. Slam dunk. Exclude the income and don’t look back (but do it right in regards to the church budget, designations, limits, and documentation or get slammed).
But what about other staff ministers? I have in mind church staff who are not the senior pastor but who exercise pastoral responsibilities. What about non-ordained but licensed staff? What about non-ordained but commissioned staff? And what about this: Would a woman church staff member qualify for a housing allowance?
Good questions.
Our cherished autonomy puts every church in a position where denominational leaders, theologians, and entities are unable to dispense rulings that settle these matters. The ordination, licensing, and commissioning of individuals has not a syllable in the Baptist Faith and Message, which wouldn’t interfere with churches’ actions on these even if it did. A church may ordain, license, and/or commission anyone for any purpose in any manner they choose. They may apply the label “minister” to any or all staffers, as well as anyone else they so choose.
What does all this mean to the IRS? Nothing. The IRS will look at the five questions above and make their decision.
The female church staff member. Will she qualify for the housing allowance under IRS rules?
If ordained and functioning like her male counterparts, almost certainly, yes.
If unordained and not functioning like male staff members, almost certainly, no.
If unordained but licensed or commissioned (or even unlicensed or commissioned), maybe. Depends.
I see a lot of things today that I didn’t see thirty or forty years ago. I see the ordinance of baptism being handed over to non-senior pastor church staff, no big deal there. But lately I see and hear of parents, grandparents, and even friends of the baptizee doing the actual dunking. That is administering one of our two church ordinances. Female staff members sometimes baptize candidates. Female staff members sometimes administer the Lord’s Supper, though not, perhaps, to the entire church assembled, rather to a smaller sub-group of members. Female staff certainly manage church matters and conduct worship, including the, uh, talking part though most commonly to sub-groups within the congregation.
Few SBC churches have female senior pastors. Few SBC churches license or ordain women, although probably more than we hear about. Many laypeople in our churches are routinely commissioned, an event with varying levels of importance. I suspect a good many women staff members in our churches receive the housing allowance. Those who meet the tests certainly should.
My guess is that the majority of Southern Baptists would consider ordination to be the break point in this. No ordination – no housing allowance. No ordination – you really aren’t considered a spiritual leader by the church. But that is up to the church, not the denomination. But the IRS doesn’t flatly require it. So, about that female staff member…
She is licensed, or perhaps commissioned in whatever formal manner the congregation chooses.
She administers the ordinances. Seems to me that one baptism, or one service (could be a women’s gathering) of the Lord’s Supper would demonstrate this.
She conducts religious worship. Might be any or all of the congregation in most any fashion. Such might be leading part of the service, music for example.
She has management responsibilities.
She is considered to be a religious leader by the congregation.
She meets the IRS tests. She should be able to arrange her compensation to include the housing allowance if she so chooses and the church agrees to do their part and designate part of her compensation as “Housing Allowance”. Perhaps the church doesn’t want to do this. In a case where a staff position may be filled, with the same job description and functions, by either gender, then the church should find another way to equalize the pay. Fairness demands it.
I suspect a number of SBC congregations, I read, are way ahead of me on the matter and have taken steps to qualify and give their female staff the housing allowance. If they are doing the same work (music, student ministry, discipleship, missions, preschool, etc.) that their male counterparts do, it is shameful if such is denied to them. The minister’s housing allowance is a tax break, not a doctrinal standard.
Notably, no SBC entity – not Guidestone, not my state convention, seems to address this directly. I wonder if they are queried on the matter?
I wonder how long it will be before some legal challenge is made on the basis of gender inequity here? I don’t think such would have much of a chance, the state being reluctant to interfere with internal church decisions and affairs.
The law or regulation could change due to “gender inequity”. But the idea that the discussion could be used as leverage is entirely dependent on existing beneficiaries of the income exclusion choosing Caesar as a provider of income at the margin.
I personally believe we win in court currently. But we might not in a year.
The law is gender neutral. Beliefs of religious groups concerning gender roles, priesthood, ordination, etc. is not.
I am curious about how widespread is the HA in regard to unordained SBC female staff and whether or not many churches have structured their personnel and compensation policies to accommodate them.
My own thinking on this is that the church and the employee can make a case for receiving the allowance for most staff members whose duties include some form of counseling, teaching, spiritual guidance vs. secretarial assistance.
When in doubt, contact the IRS and request a private letter ruling.
Do bivocational pastors have their church all or most of their salary as a housing allowance?
Same as a non-bivo pastor. If the pastor qualifies as a minister under the IRS rules.
Bi-vo pastors should absolutely take their ministerial income as HA if they are “ministers” (ordination is the key, generally) and handle it properly. Most bi-vo pastors I have known are PT, very modest pay, and may be able to exclude all their ministerial income from income tax.
If there is a SBC church that has (for example) two associate staff members, each with the same amount of previous experience, a “male” youth pastor, and a female children’s or woman’s “director”; if each position is roughly equal in responsibility; and said church gives the male minister a larger compensation package including (but not limited too) a housing allowance, and does not give the same exact package (and pay) to the female “director”, that church is 100% in the wrong. They should be ashamed of themselves, and all means and pressure from the association, state/national conventions, and entities (like… Read more »
Yep…there’s the response I believed would emerge. There are some SBC churches that believe only the senior pastor has to be male. But many churches distinguish between ministers and directors and in the process–if the person isn’t already disqualified by the mere fact of lacking the specific qualifications–females end up being left in an unfavorable tax position vis-a-vis this particular section of the tax code. My personal opinion is that outside of the SBC there are more friendly environs for women that want to be recognized as pastors. I haven’t heard a compelling argument that we’re doing it wrong. The… Read more »
Is it possible that in the future the IRS rules that a church/denomination that does not ordain women or allow women as pastors would not be eligible for various tax breaks? Just curious.
If Hillary is elected, I think it is very possible.
Same thoughts here.
Greg said: “My personal opinion is that outside of the SBC there are more friendly environs for women that want to be recognized as pastors. I haven’t heard a compelling argument that we’re doing it wrong. The egalitarian position is very well presented and argued and has been rejected.” The tax issue is clearly affected by the church’s position on gender roles in that most SBC churches do not ordain women; however, ordination is not demanded by the law. There are numerous churches that have staff positions which are or may be filled by either sex. I’d question the flat… Read more »
I want to be clear: I agree. I’m highlighting this as a (sub-)cultural issue specifically because it has to be solved as one and the rhetoric of the CR makes solving it more difficult.
I also think if it comes to a fight over the First Amendment over this issue we have zero choice but to fight that battle in a canny way: taking it to the Obama/Clinton SCOTUS largely is bad politics and worst strategy. I’m pushing buttons on purpose. I’m like that.